Not for profit organisations (NFPs) are currently able to assess their own income tax assessment eligibility without needing to advise or report to the Australian Taxation Office (ATO). Technically, since income tax is an annual assessment, NFPs should be reviewing their eligibility for tax exempt status each year. This can be done via a self-assessment, or via a private binding ruling application with the ATO. Currently, any self-assessment can be retained by the NFP and doesn’t need to be lodged anywhere.
From 1 July 2023, there will be some change and NFPs will be required to lodge an online annual self review with the ATO. While the actual process is still being finalised, this is a good time for NFPs to get ready for next financial year.
This legislation applies to non-charitable NFP organisations who hold an Australian Business Number (ABN). Most of these entities are community based sports or service organisations like clubs, playgroups or other childcare groups, senior citizen groups etc.
Under the current rules, the NFPs impacted just need to do their own self assessment to ensure that they’re eligible for the income tax exemption.
The ATO currently recommends these organisations do an annual self check to ensure ongoing eligibility and this process will become more formalised from 2023 and penalties will apply for non compliance.
An annual self assessment has always been good governance so organisations who have been keeping this up just need to ensure they stay informed as additional information about the formal process is released, which will include looking out for any new ATO templates or forms.
If it’s been a number of years since your self assessment was completed, you’re unsure if these changes apply to you or need help assessing your eligibility, please contact your Accru Advisor as soon as you can.
Even though you won’t actually need to submit your assessment until after 1 July 2024, preparation now will prevent pressure and/or penalties once the changes have been implemented.
What can influence tax exempt status?
Generally speaking, two key things will influence whether an NFP will retain tax exempt status; 1) Legislative changes or 2) Organisational changes. A self-assessment process should take into consideration things like;
- Whether the NFP has made changes to its Rules of Association or other governing documents
- Whether the NFP has adopted a new strategic plan or direction
- Whether that strategic change alters that activities that justified tax exempt status originally
- Are any new services being provided or new activities undertaken that would be inconsistent with the basis of being tax exempt
- Has there been a one-off activity or event which meant that for the year in question the basis of the ongoing tax exemption was not applicable
The ATO is still completing industry liaison with groups like professional or sector organisations and communicating information to the accounting industry so additional information may not be available until next year.
In the meantime, make sure you are keeping up to date with information sent by your accountant, the ATO or your industry groups.
Your Accru Advisor is always happy to talk you through the latest information and help you get prepared, get in touch today if you would like more information or assistance.